Derivative Financial Instruments

9 Months Ended

Sep. 26, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

17.  Derivative Financial Instruments

The Company’s derivative financial instruments include foreign currency forward contracts, which are entered into for risk management purposes, and an embedded derivative, at December 31, 2013, representing the contingent interest payment provision related to the CODES.

Foreign Currency Forward Contracts. The Company’s U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are denominated in currencies other than their functional currencies. To protect the functional currency equivalent cash flows associated with certain of these contracts, the Company enters into foreign currency forward contracts. The Company’s activities involving foreign currency forward contracts are designed to hedge the changes in the functional currency equivalent cash flows due to movements in foreign exchange rates compared to the functional currency. The foreign currencies hedged are primarily the Canadian dollar, the U.S. dollar, the Euro, and the British pound. The Company manages exposure to counterparty non-performance credit risk by entering into foreign currency forward contracts with major financial institutions that are expected to fully perform under the terms of such contracts. Foreign currency forward contracts are recorded in the Company’s condensed consolidated balance sheets at fair value and are generally designated and accounted for as cash flow hedges in accordance with the accounting standards for derivative instruments and hedging activities. Gains and losses on designated foreign currency forward contracts that are highly effective in offsetting the corresponding change in the cash flows of the hedged transactions are recorded net of income taxes in AOCI and then recognized in income when the underlying hedged transaction affects income. Gains and losses on foreign currency forward contracts that do not meet hedge accounting criteria are recognized in income immediately. Notional amounts are used to measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. The table below presents the notional amounts of the Company’s outstanding foreign currency forward contracts by currency at September 26, 2014.

Currency	Notional Amounts
	(in millions)
Canadian dollar	$	161
U.S. dollar		101
Euro		66
British pound		9
Total	$	337

At September 26, 2014, the Company’s foreign currency forward contracts had maturities through 2018.

The table below presents the location of the Company’s derivative instruments recorded at fair value on the condensed consolidated balance sheets.

	September 26, 2014								December 31, 2013
	Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities		Other Current Assets		Other Assets		Other Current Liabilities		Other Liabilities
	(in millions)
Derivatives designated as hedging instruments:
Foreign currency forward contracts(1)	$	4	$	1	$	3	$	1	$	5	$	1	$	3	$	2
Derivatives not designated as hedging instruments:
Foreign currency forward contracts(1)		—		—		—		—		—		—		—		—
Embedded derivative related to the CODES(2)		—		—		—		—		—		—		—		—
Total derivative instruments	$	4	$	1	$	3	$	1	$	5	$	1	$	3	$	2

⁽¹⁾  See Note 15 for a description of the fair value hierarchy related to the Company’s foreign currency forward contracts.

⁽²⁾  See Note 10 for a description of the CODES Retirement.

The effect of gains or losses from foreign currency forward contracts was not material to the unaudited condensed consolidated statements of operations for the quarterly or year-to-date periods ended September 26, 2014 and September 27, 2013. At September 26, 2014, the estimated amount of existing losses that are expected to be reclassified into income within the next 12 months is less than $1 million.